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Underreporting of Earnings and the Minimum Wage Spike

  • Tonin, Mirco


    (Free University of Bozen/Bolzano)

This paper documents a positive correlation within European labour markets between the proportion of full-time employees with earnings on the minimum wage and the extent of underreporting of earnings in the economy. Using a simple model of a competitive labour market, I show how this correlation can emerge as a result of the common dependence of both quantities on the strength of enforcement of fiscal regulation. This suggests that a high spike in the wage distribution at the minimum wage level is, in some contexts, an issue of fiscal enforcement, more than a labour market issue.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 5942.

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Length: 19 pages
Date of creation: Aug 2011
Date of revision:
Publication status: published in: IZA Journal of European Labor Studies, 2013, 2:2
Handle: RePEc:iza:izadps:dp5942
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  1. Mariano Bosch & Marco Manacorda, 2010. "Minimum Wages and Earnings Inequality in Urban Mexico," American Economic Journal: Applied Economics, American Economic Association, vol. 2(4), pages 128-49, October.
  2. Mirco Tonin, 2009. "Minimumwage and tax evasion: theory and evidence," MNB Working Papers 2009/2, Magyar Nemzeti Bank (the central bank of Hungary).
  3. James Andreoni & Brian Erard & Jonathan Feinstein, 1998. "Tax Compliance," Journal of Economic Literature, American Economic Association, vol. 36(2), pages 818-860, June.
  4. Sara Lemos, 2006. "Minimum Wage Effects in a Developing Country," Discussion Papers in Economics 06/1, Department of Economics, University of Leicester.
  5. Yuriy Gorodnichenko & Jorge Martinez-Vazquez & Klara Sabirianova Peter, 2009. "Myth and Reality of Flat Tax Reform: Micro Estimates of Tax Evasion Response and Welfare Effects in Russia," Journal of Political Economy, University of Chicago Press, vol. 117(3), pages 504-554, 06.
  6. Tito Boeri & Pietro Garibaldi & Marta Ribeiro, 2010. "The Lighthouse Effect and Beyond," Carlo Alberto Notebooks 193, Collegio Carlo Alberto.
  7. Ahn, Tom & Arcidiacono, Peter & Wessels, Walter, 2011. "The Distributional Impacts of Minimum Wage Increases When Both Labor Supply and Labor Demand Are Endogenous," Journal of Business & Economic Statistics, American Statistical Association, vol. 29(1), pages 12-23.
  8. Colin C. Williams & Sara Nadin, 2012. "Tackling Undeclared Work in the European Union," CESifo Forum, Ifo Institute for Economic Research at the University of Munich, vol. 13(2), pages 20-25, 07.
  9. Tonin, Mirco, 2010. "Too low to be true: the use of minimum thresholds to fight tax evasion," Discussion Paper Series In Economics And Econometrics 1018, Economics Division, School of Social Sciences, University of Southampton.
  10. David Neumark & William L. Wascher, 2008. "Minimum Wages," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262141027, June.
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